Standard Pricing Research Articles

Do home sellers know their market? Evidence from neighbourhood sober-living houses

ABSTRACT We use a listing price hedonic model coupled with a standard selling price model to identify seller beliefs about how the housing market responds to refurbished formerly substandard properties serving as group homes. Occupied houses benefit the most and vacant houses the least in the long run from a nearby group home. The listing price model indicates that sellers of owner-occupied and rental houses anticipate these price effects whereas sellers of vacant properties appear to systematically underestimate the discount associated with vacant houses per se but correctly anticipate the smaller long run group home premia for their properties.

A literature review of new methods in empirical asset pricing: omitted-variable and errors-in-variable bias

Standard procedures in empirical asset pricing suffer from various issues that are common to all regression-based methods. This work reviews recently introduced approaches that aim to mitigate problems associated with omitted factors and errors-in-variables. New methods addressing the omitted-variable bias suggest procedures for selecting appropriate control variables, aggregating the information from a large set of factors, or making existing methods robust against omitted factors. While the omitted-variable problem is present in almost all standard empirical asset pricing methods, the errors-in-variables problem is largely limited to the estimation of factor premia via two-pass regressions. New methods addressing the errors-in-variable bias implement an instrumental variable approach, suggest a generalized version of the widely used portfolio sorts procedure, or correct estimates based on an analytic expression for the bias. Ultimately, all of these new methods represent highly relevant advances for the area of empirical asset pricing, and the possibility to synthesize the most promising approaches might be worthwhile to investigate in the future.

The Dynamics of the Implied Volatility Surface: A Story of Rare Economic Events

We propose a macro-finance model that rationalizes robust features in equity-index option markets. When rare disasters are followed by economic recoveries, the slope of the implied volatility term structure is positive in good times but turns negative in bad times. Additionally, implied volatility decreases with moneyness in bad times (volatility skew), while the shape becomes a smile in good times in the presence of rare economic booms. Our theory contributes to understanding the dynamics of the implied volatility surface while keeping standard asset pricing moments realistic.

Modeling unobserved heterogeneity in hedonic price models

AbstractThis paper studies unobserved heterogeneity in hedonic price models, arising from missing property and locational characteristics. Specifically, commercial real estate is very heterogeneous, and data on detailed property characteristics are often lacking. We show that adding mutually independent property random effects to a hedonic price model results in more precise out‐of‐sample price predictions, both for commercial multifamily housing in Los Angeles and owner‐occupied single‐family housing in Heemstede, the Netherlands. The standard hedonic price model does not take advantage of the fact that some properties sell more than once. We subsequently show that adding spatial random effects leads to an additional increase in prediction accuracy. The increase is highest for properties without prior sales.

A Secondary Mixed Methods Analysis of a Pay-it-Forward Gonorrhea/Chlamydia Testing Program Among Men Who Have Sex With Men in China.

Gonorrhea and chlamydia are common among Chinese men who have sex with men (MSM), but testing rates are low. We developed a pay-it-forward program where men receive a free gonorrhea/chlamydia test and can then donate toward future participants' tests. This study aims to investigate drivers of testing uptake and donation using a mixed methods approach. We used a sequential explanatory design to explore drivers of testing uptake and donation unique to pay-it-forward through a quantitative cross-sectional survey and a qualitative thematic analysis of semistructured interviews. We collected data on sociodemographics and perceived benefits of pay-it-forward among men offered the pay-it-forward interventionand analyzed testing uptake and donations using descriptive statistics and logistic regression. We then conducted 30 semistructured interviews with men and coded interview data to identify themes. Three hundred and one MSM were offered pay-it-forward and 55% (165/301) received gonorrhea/chlamydia testing. Ninety-one percent (150 of 165) donated any amount with a mean of 58.31 ± 53.39 RMB (US $8.61 ± 7.88), or 39% of the standard price of gonorrhea/chlamydia testing. Getting tested was not associated with income, but donations were higher in the highest income bracket (adjusted odds ratio, 7.12; 95% confidence interval, 1.61-31.52). Fifty-eight percent (94 of 162) selected "more MSM can get tested," and 54% (88 of 162) selected "I can help someone else" as benefits of pay-it-forward. Qualitative themes for drivers of testing and donation included flexible pricing, generosity and reciprocity, and MSM community identity. Quantitative and qualitative results suggest that this pay-it-forward program may increase gonorrhea/chlamydia testing by reducing cost barriers, leveraging generosity and reciprocity, and mobilizing community altruism.

MULTI-LAYER ARTIFICIAL NEURAL NETWORK FOR ESTIMATING REAL-ESTATE PRICES

The estimation of land costs, are a helpful and sensible methodology for purchasers and for neighborhood and monetary specialists. It is of most extreme significance to assess the present status of the market and anticipate its presentation over the present moment so as to settle on suitable money related choices. We will utilize two propelled displaying approaches Multi-Level Models and Artificial Neural Networks to demonstrate house costs. This methodology is contrasted and the standard Hedonic Price Model as far as exactness in expectation, gathering the area data and their logical (understanding) power. This undertaking presents the advancement of a multi-layer fake neural system based models to help land financial specialists and home designers in this basic assignment. ( Abstract )

Coupling a Power Dispatch Model with a Wardrop or Mean-Field-Game Equilibrium Model

In this paper, we propose an approach for coupling a power network dispatch model, which is part of a long-term multi-energy model, with Wardrop or Mean-Field-Game (MFG) equilibrium models that represent the demand response of a large population of small “prosumers” connected at the various nodes of the electricity network. In a deterministic setting, the problem is akin to an optimization problem with equilibrium constraints taking the form of variational inequalities or nonlinear complementarity conditions. In a stochastic setting, the problem is formulated as a robust optimization with uncertainty sets informed by the probability distributions resulting from an MFG equilibrium solution. Preliminary numerical experimentations, using heuristics mimicking standard price adjustment techniques, are presented for both the deterministic and stochastic cases.

Investor and market overreaction: a retrospective

PurposeAre the capital markets of leading industrialized nations rational and efficient? This powerful hypothesis was badly dented by the work of De Bondt and Thaler (1985) on stock market overreaction and by subsequent research on momentum and reversals in prices and earnings.Design/methodology/approachHuman psychology, at times predictably irrational, drives the markets. This paper investigates this issue.FindingsThe author reviews the origins of the idea of overreaction, how behavioral insights modify standard asset pricing theory and how they contribute to our understanding of the world of finance.Originality/valueThe paper reveals the origins of the idea of overreaction, how behavioral insights modify standard asset pricing theory and how they contribute to our understanding of the world of finance.

Country versus Pharmaceutical Company Interests for Hepatitis C Elimination

Hepatitis C virus (HCV) is one of the leading causes of liver disease, and responsible for massive health and economic burden worldwide. In its early stages, the disease is asymptomatic, but it can progress over time to fatal end-stage liver disease. Thus, the majority of individuals infected with HCV are unaware of their chronic condition. Recent treatment options for HCV can completely cure the infection but are costly. We developed a game model between a pharmaceutical company (PC) and a country striving to maximize the utility of its citizens. First, the PC determines the price of HCV treatment; then, the country responds with corresponding screening and treatment strategies. We employed an analytical framework to calculate the utility of the players for each selected strategy. Calibrated to detailed HCV data, we found that the PC will gain higher revenue by offering a quantity discount rather than using standard linear pricing, by indirectly forcing the country to conduct more screening than it desires. We also present several strategies to substantially mitigate this sub-optimal outcome for the country. Thus, policy makers worldwide should prudently consider recent offers by PCs to increase screening either directly, via covering HCV screening, or indirectly, by providing discounts following a predetermined volume of sales. Our approach provides a rational explanation for the current agreements between countries and PCs. It is applicable in other healthcare settings where screening is essential to determine treatment strategies.

PLATFORM COMPETITION WITH ENDOGENOUS HOMING

AbstractWe consider two‐sided markets in which consumers and firms endogenously determine whether they single‐home, multi‐home, or exit the market. We find that the competitive bottleneck allocation in which consumers single‐home and firms multi‐home is always an equilibrium. In addition, we find equilibria with multi‐homing and single‐homing on each side of the market. However, unlike the standard pricing result where the side that multi‐homes faces higher prices, we find that lower prices coincide with multi‐homing: agents find multi‐homing more attractive when faced with lower prices. We also show that endogenous homing can induce straddle pricing which deters price undercutting between platforms.

Higher frequency hedonic property price indices: a state-space approach

The hedonic imputation method allows characteristic shadow prices to evolve over time. These shadow prices are used to construct matched samples of predicted prices, which are inserted into standard price index formulas. We use a spatio-temporal model to improve the method’s effectiveness on housing data at higher frequencies. The problem is that at higher frequencies, there may not be enough observations per period to reliably estimate the characteristic shadow prices. In such cases, the reliability of the hedonic imputation method is improved by using a state-space formulation which yields estimates of the shadow prices that are weighted sums of previous periods’ information. In addition, the state-space representation of the model includes a geospatial spline surface which significantly reduces the number of parameters to be estimated when compared to the standard practice of including postcode dummies in the model. Empirically, using a novel criterion, we show that in higher frequency comparisons, our hedonic method outperforms competing alternatives.

Current issues of improving the pricing system in construction in the transition period

Introduction. The focus on transition to the input method of estimated cost accounting, demonstrated by the leaders of the construction industry, outlines the principal goals pursued in the process of improving the pricing system. The monitoring of prices for construction resources gains in importance. The research is based on the analysis of the construction industry’s current need for updated regulatory information and an improved pricing methodology.
 Materials and methods. A relevant problem of pricing, which is now quality-driven, has been solved by the construction industry amidst the strengthening role of government agencies. Presently, pricing is driven by the factors that characterize the course of an investment process, primarily, promoted by the customer. This methodology encompasses the assessment of pricing regulations with a required extent of generalization in terms of any submitted data.
 Results. The experiment conducted to assess the established pricing regulations in terms of special construction facilities has proven the maximal significance of factors, describing a construction project stage as a correlation between estimated and actual costs incurred by a construction company. Against the background of impeded introduction of changes into costing standards, a pool of solutions has been generated to monitor prices for construction resources and to generate price escalation models.
 Conclusions. The best methods used to adapt standard prices to actual costs of construction products should involve the monitoring of prices for the whole range of construction resources. Methodological problems are to be solved in a way that must improve the trustworthiness of estimated construction costs. The novelty and practical significance of this research stem from the analysis of the current development stage of the system of federal and industry-specific regulations and methodologies.

Promotion Design with Path Dependent Network Effects

In many retail settings such as fast-food chains, limited time “collect and win” games are often used to promote products and drive sales to the retail outlets. Unlike the more standard price discount or “buy-X-get-Y” promotional campaigns, the “collect and win” games create short term temporal changes to customers' purchasing behavior - the desire to buy products on promotion and frequency of purchases both increase with the number of previous purchases. We call this the “path dependent network effect” of “collect and win” games. In this paper, we study the promotion design problem for these games, to determine the set of eligible products and the duration of the promotion. This problem is challenging, as the customers' purchasing behavior now depends not only on the product attributes and features (static effect), but also on product eligibility for promotion and historical purchases (path dependent network effect). We model the dynamic choice processes associated with the customers in these games using poissonization of the Polya Urn models, to capture the transient change in the frequency of purchases and purchase probability of each product on promotion. We use this approach to study the optimal promotion design problem under different “collect and win” game settings, by solving non-convex assortment optimization problems. We obtain an exact and/or approximation approach for these problems and show that the revenue-ordered promotion set is already near-optimal in many of these games. The optimal duration then depends on the promotion set chosen, and also on the targeted number of products sold before the game found a winner for the grand prize. Using a set of data provided by a fast-food company which conducts the “collect and win” promotion annually, we show the importance of carefully choosing the promotion set and promotion duration, both decisions that will affect the total revenues and profits generated by such promotion campaigns.

Fiber investment and access under uncertainty: long-term contracts, risk premia, and access options

Regulated access schemes shape incentives for both investment and entry in next-generation networks. We study in a general duopoly setting whether and how risk premia, access options or long-term contracts improve those incentives as compared to standard access pricing. The first two do so: Risk premia guarantee highest coverage, while distorting retail pricing. Access options safeguard undistorted retail competition, but are not effective in the most costly areas. On the other hand, long-term contracts have little scope to increase coverage because they intensify retail competition.

Does a big bazooka matter? Quantitative easing policies and exchange rates

We estimate the effects of quantitative easing (QE) measures by the ECB and the Federal Reserve on the US dollar-euro exchange rate at frequencies and horizons relevant for policymakers. To do so, we derive a theoretically-consistent local projection regression equation from the standard asset pricing formulation of exchange rate determination. We then proxy unobserved QE shocks by future changes in the relative size of central banks’ balance sheets, which we instrument with QE announcements in two-stage least squares regressions in order to account for their endogeneity. We find that QE measures have large and persistent effects on the exchange rate: The typical ECB or Federal Reserve expansionary QE announcement in our sample resulted in an increase in the relative balance sheet of about 20% and, in turn, in a persistent exchange rate depreciation of around 7%. Regarding transmission channels, we find that a relative QE shock that expands the ECB’s balance sheet relative to that of the Federal Reserve depreciates the euro against the US dollar by reducing euro-dollar short-term money market rate differentials, by widening the cross-currency basis and by eliciting adjustments in “residual” deviations from interest parity. Changes in the expectations about the future monetary policy stance, reflecting the “signalling” channel of QE, also contribute to the exchange rate response to QE shocks.

What Happens When Equity Investors Disagree with the FOMC?

This research explores an alternative explanation for the equity premium associated with Federal Open Market Committee (FOMC) announcement days that accounts for a sizable fraction of annual equity returns. My evidence shows that investor expectations formulated prior to FOMC announcements have a significant impact on equity prices, particularly when these expectations are not aligned with the FOMC decision. Furthermore, I document an even larger impact around FOMC announcements where the level of interest rates remained unchanged. When monetary policy is neutral, the observed investors’ disagreement towards the FOMC decisions represents a further layer of uncertainty in the dynamics of equity markets. My results reconcile past findings on the monetary policy surprise literature and more recent empirical findings on the effect of FOMC announcements, which are difficult to explain with standard asset pricing theories. Moreover, as I find little effects on equity returns when the FOMC decision is anticipated by the market, a practical implication of my study is that monetary policy authorities should take into account market expectations when formulating disclosure policy in order to improve alignment with financial market expectations and smooth out their economic consequences.

Enhanced Portfolio Optimization

Portfolio optimization should provide large benefits to investors, but standard mean-variance optimization (MVO) works so poorly in practice that optimization is often abandoned. The approaches developed to address this issue are often surrounded by mystique regarding how, why, and whether they really work, so we seek to simplify, unify, and demystify optimization. We identify the portfolios that cause problems in standard MVO and present a simple enhanced portfolio optimization (EPO) method. Applying EPO to industry momentum and time series momentum across equities and global asset classes, we find significant alpha beyond the market, the 1/N portfolio, and standard asset pricing factors. Citation: Pedersen, Lasse Heje, Abhilash Babu, and Ari Levine, Enhanced Portfolio Optimization, Financial Analysts Journal, 2021, 77(2): 124-151. Available at SSRN: https://ssrn.com/abstract=3530390 Published version (open access) at https://doi.org/10.1080/0015198X.2020.1854543

Drivers of Smallholder Plantation Forestry in the Tano North District of Ghana

Adoption of smallholder plantations in off-forest reserve among farmers has always been a challenge. Using the qualitative methods and survey among 193 smallholder plantations farmers through simple random sampling from six communities in the Tano North District, the study aimed at exploring the drivers for smallholder plantation forestry in the Tano North District of the Brong-Ahafo Forest Region of Ghana. The findings showed that as age of farmers increased, the number of plantations owned reduced. Surprisingly, all the plantations owned by farmers were teak. In addition, a significant relationship between gender of farmers and factors that motivated them to establish smallholder plantations was identified. Furthermore, the relationship between gender and land tenure systems was significant. The study identified low price for teak wood, absence of standard price for teak wood, decline in food crop yield due to canopy closure of teak stands, lack of capital to invest in teak plantation, lack of extension services from Forest Services Division and wildfire as the factors that militate against smallholder plantation forestry. The motivating factors for smallholder plantation forestry were financial returns, plantation as collateral to secure loans, hobby and construction material for subsistence use. The identified drivers if taken into account during the implementation of smallholder forestry could enhance its viability and adoption. Keywords: gender, land tenure, land size, age, militating factors, relationship DOI: 10.7176/JNSR/10-6-04 Publication date: March 31 st 2020

Super-Fast Computation for the Three-Asset Equity-Linked Securities Using the Finite Difference Method

In this article, we propose a super-fast computational algorithm for three-asset equity-linked securities (ELS) using the finite difference method (FDM). ELS is a very popular investment product in South Korea. There are one-, two-, and three-asset ELS. The three-asset ELS is the most popular financial product among them. FDM has been used for pricing the one- and two-asset ELS because it is accurate. However, the three-asset ELS is still priced using the Monte Carlo simulation (MCS) due to the curse of dimensionality for FDM. To overcome the limitation of dimension for FDM, we propose a systematic non-uniform grid with an explicit Euler scheme and an optimal implementation of the algorithm. The computational time is less than 6 s. We perform standard ELS option pricing and compare the results from the fast FDM with the ones from MCS. The computational results confirm the superiority and practicality of the proposed algorithm.

KELAYAKAN USAHA BUDIDAYA ULAT SUTERA (BOMBIX MORI L.) BERDASARKAN ASPEK NON FINANSIAL KABUPATEN BOALEMO

The purpose of this study was to determine the feasibility of the business based on non-financial aspects of silkworm cultivation. The results of this study were with high demand and with a guarantee of the cocoon market, silkworm cultivation business conducted in the Tangga Barito village, the working area of of KPHP Unit V Boalemo worthy of doing. Cocoon selling prices of Rp. 40,000 is a standard price that is appropriate for quality b (medium) cocoons. To increase the added value of mulberry cultivation, it can endeavor to manufacture mulberry tea which is used as an antioxidant drink or to process silkworm waste into organic fertilizer. For technical and technology aspects starting from the business location, the location of caterpillar maintenance in general is close to the residence so as to facilitate maintenance and supervision. Silkworm cultivation is prepared starting from the building of silkworms to how to control pests and diseases that attack silkworms. The organization in question consists of informing matters relating to the cultivation of silkworms, directing, coordinating the development of mulberry and silkworm maintenance demonstration plots. From these results the silkworm business is feasible to run.Keywords: Aspect of non financial, Boalemo, Business feasibility, silkworms